The Democrats wouldn't have stripped out a bipartisan provision that Senators Snowe and Wyden put in the original proposal to tax bonuses for firms that accept government bailout funds. It would be interesting to find out who was the genius who stripped that provision out.
Chris Dodd is leaping all over himself to condemn AIG even though he'd originally proposed an amendment protecting compensation.
Republicans singled out a last-minute amendment attached to the $787 billion stimulus bill that exempted AIG from strict executive compensation limitations.Can't you just picture the ads that will be run against the already endangered Chris Dodd next year? Republican ad makers must already be at their drawing boards picking out the most unappealing Dodd photos to juxtapose with some sinister music and pictures of shadowy AIG executives. Oh, and then they can add in the tidbit of how Dodd was the largest recipient of AIG donations. AIG is the new Enron with the difference being that the federal government is now tied up in the meltdown.
The final version of the amendment includes an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009” — a provision that exempts the AIG bonuses Congress is now trying to recoup.
Dodd, the chairman of the Senate Banking Committee, sponsored the amendment, but his office said Tuesday that his original proposal did not include special treatment for AIG.
And Chuck Grassley displays the human touch calling for AIG leaders to commit suicide, thus echoing Congressman Lantos's hint to Craig Livingstone of the Clinton FBI files scandal that he follow Admiral Borda's example of killing himself when he'd made a mistake. What is it with these guys on the Hill that they think their honor is so pristine that they can recommend ritual seppuku to others?
Now every politician in DC is rushing to a microphone to condemn AIG in the most ringing tones. Where were they before when all this money was being shoveled over to AIG? And they're trying to craft a policy to tax those bonuses in order to regain the money. What is it about bills of attainder that they don't understand? As the WSJ wrote yesterday,
The Washington crowd wants to focus on bonuses because it aims public anger on private actors, not the political class. But our politicians and regulators should direct some of their anger back on themselves -- for kicking off AIG's demise by ousting Mr. Greenberg, for failing to supervise its bets, and then for blowing a mountain of taxpayer cash on their AIG nationalization.This is what happens when you have the government quickly putting together emergency provisions to bailout private companies. Once Secretary Paulson decided that AIG was too big to fail and that a bailout had to be put together in some godawful hurry, we were on the path to this moment.
Whether or not these funds ever come back to the Treasury, regulators should now focus on getting AIG back into private hands as soon as possible. And if Treasury and the Fed want to continue bailing out foreign banks, let them make that case, honestly and directly, to American taxpayers.
Ruth Marcus offers some words of reason.
Well, because in the short run, hammering the AIG employees to give back their bonuses risks costing the government more than honoring the contracts would. The worst malefactors at AIG are gone. The new top management isn't taking bonuses. Those in the bonus pool are making sums that for most of us would be astronomical, but are significantly less than what they used to make. Driving away the very people who understand how to fix this complicated mess may make everyone else feel better, but it isn't particularly cost-effective.The politicians chose a federal bailout over a bankruptcy procedure. In a bankruptcy, there would have been provisions to renegotiate contracts that could have been used to avoid this moment. But we didn't do that. We went the bailout route. And now we're reaping the reward. And the politicians are the ones who voted for all this. The outrage that we're seeing is the result of those politicians realizing that they were at fault and they're desperately trying to cast the blame elsewhere.
In the longer term, having the government void existing contracts, directly or indirectly, as with the suggestions of a punitive tax on such bonuses, will make enterprises less likely to enter into arrangements with the government -- even when that is in the national interest. This is similarly counterproductive.
Remember, the contracts were negotiated long before the government put a cent into AIG. "The plan was implemented because there was a significant risk of departures among employees at (the company)," AIG wrote in a paper explaining the plan, "and given the $2.7 trillion of derivative positions at (the company) at that time, retention incentives appeared to be in the best interest of all of AIG's stakeholders."
And federal legislation explicitly states that compensation limits for companies receiving bailout funds do not apply to pre-existing contracts.
That was then, this is now is not a valid legal principle. "We are a country of law," economic adviser Lawrence Summers said Sunday. "There are contracts. The government cannot just abrogate contracts." He was right.
UPDATE: And all this self-serving chest-beating bullying of AIG may be totally counterproductive to improving the economy. Andrew Ross Sorkin writes in the NYT,
If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.If the AIG executives were the ones who helped get the economy into this mess, does the Geithner-Congress alliance give you any more confidence that they know how to fix things any better?
As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is. Business agreements of other companies that have taken taxpayer money might fall into question. Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts.
If government officials were to break the contracts, they would be “breaking a bond,” Ms. Meyer says. “They are raising a whole new question about the trust and commitment organizations have to their employees.” (The auto industry unions are facing a similar issue — but the big difference is that there is a negotiation; no one is unilaterally tearing up contracts.)
22 comments:
Sen Dodd is currently denying he put the exemption in the bill and other committee memebers are also beginning to claim, "Me neither." There are a whole series of articles at Firedoglake and Glenn Greenwald(Yes, I realize not the greatest of sources but they seem sound here) that the original provision was changed by the leadership and the WH represented by Summers and Geithner. And to take the heat of Obama mulitiple leaks are claiming authorship solely is owned by Dodd.
In a way it is a brilliant tactic as Dodd couldn't get any more unpopular and not too many people will defend him. Dodd is this year's Lenny, easy to believe the worst of from past "accidents" and difficult to believe when he denies that he didn't hurt the girl this time.
http://www.cnn.com/2009/POLITICS/03/17/aig.bonuses.congress/
Rasmussen has Obama's aproval rating down 5% since Feb and his disapproval now at 26% compared to 11% on Inaugural Day. Even Jimmy Carter didn't start tanking this quickly.
Wouldn't a clawback law violate the "no bill of attainder" provision of the Constitution?
As for the money AIG "gave" to other banks, wasn't that the business AIG was in?
Wasn't the purpose of bailing out AIG also supposed to bail out AIG's customers?
They had what was in effect insurance contracts with other financial institutions to pay them money if insured instruments went bad. The got popcorn surprised on how bad and big the losses were going to be. Just like Barney Frank.
One could argue that Team Obama wanted AIG to give out the big bonuses since it deflects a lot of inevitable populist anger away from Obama. It also puts the free market system in a bad light: Obama would see that as win/win. So why would they not remove a seemingly sensible addition from the bill since they stand to gain politically from its absence. From their behavior it would be difficult to prove that Obama cares one way or other where the money goes as long as ACORN and other Democrat patronage entities are taken care of. This bill is a giant monument to incompetence and self-aggrandizement.
Rasmussen has Obama's aproval rating down 5% since Feb and his disapproval now at 26% compared to 11% on Inaugural Day. Even Jimmy Carter didn't start tanking this quickly.
a little perusal of this chart of presidential approval ratings from gallup should easily show you how obama's approval ratings in his first few months are better than any president since and including reagan
as for AIG rage, the republican party has its work cut out for itself trying to get it to spin the way they would like, that is to get the blame to stick to democrats, preferably the president:
1. gotta stop rush limbaugh from saying that the AIG guys deserve the bonuses and that it is bad to attack them for it!
2. difficult to escape the fundamental fact that AIG executives approved the bonuses. i'm afraid that is so clear that republican efforts to find a democrat politician to blame tend to lack logical force
3. all those decades that the republican party sold itself as the friend of big business and wall street (remember w pushing a plan to allow people to bet their social security?) is coming back to haunt them since it is pellucidly clear to the american people that this part of the free market does not make such wise decisions after all
so who is the outrage going to hurt?
oh, excuse me, it seems that rush limbaugh, that spokesman for the entire conservative movement, doesn't even understand what a 'retention bonus' is:
Now, what is a retention bonus? The best way to explain a retention bonus is to say that a retention bonus is offered to an employee who is being laid off down the road in order to keep the employee, in order to retain the employee. When a company announces layoffs for whatever reason, they still need cooperation from the employees who are going to eventually lose their jobs....To hell with their current work, they're getting laid off. What the hell does it matter? The only thing that will keep them there, the only thing that will keep them working until their termination date is a retention bonus. Some employees forgo the retention bonus, because they get a hiring bonus from their new employer.
well, i guess i have an advantage over him in that i have actually recieved a retention bonus, and i'm guessing he never has
Good Morning Tacitus V.
Your post leaves out the pellucidly clear obligation that congress has to spend our money wisely. They also have an obligation to consider input from the voters. By rushing the passage of this legislation without even reading it (I know it is so old fashioned of me to want my representatives to read what they vote on), by never engaging in public discussion and examination of this legislation before its passage they have shown total disregard for their responsibility and for their constituents. The media circus of the AIG bonuses is a blip. The ugly joke that is our congress is becoming a gaping, foul smelling wound that seems not likely to improve as long the place is full of the usual suspects.
Then how come Pres Carter's ratings rose immediately, using the graphs in the link, after the inauguration which again simply butresses my point that Obama seems to be slipping faster than Carter but not quite as Johnson and Ford. Plus looking at the chart shows that most presidents in the first year increased their approval ratings while only a few Johnson, Ford and Carter lost approval and the demonized, still, GWB Bush increased his by 50% in the first year.
Obama has lost 10 points since inauguration and also now has the highest disapproval rating of any president in the first few months of office.
"Senator Barack Obama received a $101,332 bonus from American International Group in the form of political contributions according to Opensecrets.org. The two biggest Congressional recipients of bonuses from the A.I.G. are - Senators Chris Dodd and Senator Barack Obama."
Phony outrage is right.
We didn't hire AIG to watch over our tax money. We hired the government. The government owns AIG to the tune of 80%
The real people we should blame:
http://www.butasforme.com/2009/03/17/obamas-stimulus-bill-explicitly-grants-aig-the-legal-right-to-hand-out-bonuses/
"Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts."
That is pure BS. If a company is bankrupt, most of its contracts are gone. Depending on how much its liquidation values are, its contracts with prefer stock holders are gone, its contracts with bond holders are mostly gone. Bonuses? Employees may not even get their wages.
AIG is bankrupt. All bonuses are to be paid when a company has profits to pay bonuses. No company in the real world is allowed to pay bonuses from borrowed money which is earmarked for the company's survival. Why is AIG exempted from normal business practice? Because they are paying off politicians to pocket taxpayers' money. Creditors have rights and can restrict where their money is to go. But taxpayers, as creditors, don't, because their so-called representatives are paid off.
My niece's annual compensation includes a monthly salary, and a comparable amount of bonus to be paid at the end of the year. When the economy turned south, the first thing the employer said was they need to preserve capital, no bonuses. Companies like HP actually cut employees' wages by 7 - 10%. Yet a bankrupt AIG pays millions of bonuses with money confiscated from employees whose incomes might have been cut.
Something has to rot pretty bad to stink to high heavens. No amount of BS can change that.
Schumer has threatened to tax bonuses at the rather high rate of 100%. Grassley, a grown up and supposedly responsible senator, has advised AIG managers to commit suicide. These poor people are grasping at straws. They know "We won" isn't going to save them here. They are feeling frightened and out of control so they are really trying to get a media circus going to deflect focus and anger from their derelictions. It might work for a few minutes but it won't save all of their jobs long term.
The government rants will achieve what Sarbanes Oxley did for registering new IPOs. Registering new oferings in the USA fell off markedly after Sarbanes Oxley.
The same thing will happen with insurance and finance companies. The good workers will not work in the US because they won't know when the Congress will find the next reason to restart the villification process.
Add this to the hospitality industry which lost 200,000 jobs in January, and the soon to be non-existent private jet infrastructure which employs a million people, and soon we will be talking about real harm to the economy.
All because of politicians do what they do best, blame the other guy.
Then again if this CNN report is true Sen Dodd lied and let others try to exonerate him knowing that he had changes the provision to allow the bonuses. Odd, probably the right thing to do but certainly not to lie about.
http://news.yahoo.com/s/politico/20090318/pl_politico/30833
Sorry, I should have used another link that one is broken.
http://tinyurl.com/d3luxn
why oh why don't we have the rules for elected politicians that we have for judges: if you have a conflict of interest, you must recuse yourself from voting (judging)?
It seems so obvious that it should not need to be stated. If AIG has contributed mightily to your political career, you are disbarred from voting on laws that affect AIG.
Why isn't that our current practice the way it is with judges?
Well let's see the bonus, or retention bonus, or as the accountants call this, a Draw totals between 130 to 160 million dollars. Which is pocket change compared to the debt AIG has. As previously pointed out the US taxpayer now owns 80% of AIG and it is headed up by a guy named Liddy who draws $1 dollar a year as the government appointee to run the company. In his opinion it was better to keep the draw even though some didn't deserve it. Now AIG people are quitting,in part because of death threats and the threat to remove the draw and clawback what they have made. A couple of them have already gotten jobs overseas.
As the people you need to run the business leave along with the rest, the odds of the Taxpayers ever getting their money back from AIG drops below the event horizon.
Also you can kiss the finance and Insurance companies in New York goodbye. What's left will be in the canton of ZUG in Zwitzerland by next year. Their goes what remains of New York City's tax base.
i'm not really sure how all you guys co-ordinate these talking points every week.
let's see, two weeks ago it was "if obama doesn't stop everything he's doing, the stock market will keep going down". last week it was the rather weak "he's trying to do too much! the president should concentrate on saving my butt". this week it was going to be the 'plummeting' of the president's poll numbers from 12 points above to only 2 points above the approval rating of any of the last four presidents at this point in their presidency.
but the entire gop was blindsided by sudden outrage at wall st crooks, and can't decide whether 1. the whole outrage thing is "phony", or 2. ok, it isn't phony, the whole country is mad, so it must somehow be obama's fault. good luck with that one!
about the stock market and the poll number factitiousness: both ideas suffer from belief that current trends will continue, one of the stupidest mistakes anyone can make when interpreting such statistics. as the old joke in every high school statistics class has it, "if current trends continue, my kitten will grow as large as a house". oh, what was that? you never heard that? i guess not
As opposed to being utterly clueless as to what the current post is about? Why not add to the thread about the topic rather than constantly complain when it doesn't mount your hobbyhorse?
As opposed to being utterly clueless as to what the current post is about? Why not add to the thread about the topic rather than constantly complain when it doesn't mount your hobbyhorse?
i was replying to exactly what you posted, pat:
Rasmussen has Obama's aproval rating down 5% since Feb and his disapproval now at 26% compared to 11% on Inaugural Day. Even Jimmy Carter didn't start tanking this quickly
m.o.d,
We don't often agree but your point is well taken on the matter of conflicting interests.
Dodd and Frank are clearly influenced by the people they are positioned to punish or reward. This goes across the board and the aisle in the House and Senate but then we've handed them this opportunity year after year stretching into decades. TERM LIMITS!
It's understandable when impressionable minds can only function on the "truths" generated by the Obama administration and in secretive mail lists. But tv, when that's all you have to contribute to the discussion, it doesn't enlighten any of us.
There may be just reasons to feel these bonuses are unfair, but the attention it is getting - and the politics behind it - are so obvious that you're parroting the talking points comes across as foolishness.
My mention of the Rassmussen Poll was merely an afterthough after addressing the post issue while your comments were the usual string of ill-considered links and ad hominem attacks against either the other commenters or people that have nothing to do with the original post.
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